Lenders face challenges in light of new legislation
While the introduction of the new Federal Responsible Lending legislation is a big step forward in terms of consumer protection, there remains a challenge for credit providers in the absence of a comprehensive reporting system, according to Angus Luffman, head of consumer risk at Veda Advantage.
Under the new legislation, which will be introduced on 1 January, 2011, banks, credit unions and finance companies will be required to prove they have taken all reasonable steps to establish a loan is not unsuitable for the consumer — in terms of consumer’s capacity to repay.
Luffman said lenders would also be obligated to ensure the loan would not put the consumer in a position of substantial hardship and would need new data tools to predict and prevent it.
“Substantial hardship’ is not defined in the legislation and Veda Advantage is undertaking specialist research to better understand financial hardship and its predictors, to help lenders identify which applicants may be in possible trouble when they asses a loan,” he added.
However, lending institutions cannot see whether a consumer is becoming overstretched on their current loans, Luffman said.
“A move to a comprehensive, or positive reporting system which is currently being drafted, will allow credit providers to have the information to more effectively meet their Responsible Lending obligations,” he added.
His comments followed the release of a study by Galaxy Research for Veda Advantage, which found that around 17 per cent of Australians are currently struggling to repay debt, 15 per cent of which are looking to take on even more credit in the next six months.
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